We missed the midpoint syndicate forecast for IG Corporate volume this week by a lot. In fact, the very low estimate calling for only $19.4b was off by 42% with only $11.125b in new supply. Next week, however, desks seemed focused on around $25b.

Yellen speaks next Friday, March 3rd and the Employment Report is the following Friday, March 10th. Those are really the only two bits of data that could move the market. Of course that’s notwithstanding any one of myriad global event risk factors playing out i.e. the Dutch election on Wed. 3/15 followed by round one of the French election on Sunday, April 23rd and round 2 on Sunday, May 7th. As we get closer and closer to each, polling will gyrate thru the markets.

Next week has been a huge one in each of the past three years for IG Corporate volume and overall IG issuance including SSA product.

Take a look:

2016 – IG Corps: $50.72b Corps + SSA: $61.22b

2015 – IG Corps: $59.03b Corps + SSA: $65.03b

2014 – IG Corps: $50.29b Corps + SSA: $55.18b

Unfortunately no estimate for next week comes close to the $50m mark. The highest estimate is an out layer at $43b. The most dense groupings are focused on around $25b with the midpoint estimate being $25.46b. I am more optimistic for 30b+ in new IG Corporate issuance only because we’ve disappointed on recent weekly issuance projections in 3 of the past 4 weeks, the time is right, tone is formidable, concessions are skimpy, issuers cannot sit around forever, demand is very strong and so, I err to the upside. Overall issuance including SSA could top $40b.

IG Primary & Secondary Market Talking Points

Taking a look at the secondary trading performance of this week’s IG and SSA new issues, of the 20 deals that printed, 17 tightened versus NIP for a 00% improvement rate while 2 widened (10.00%) and 1 were flat (5.00%).

For the week ended February 22nd, Lipper U.S. Fund Flows reported an inflow of $2.566b into Corporate Investment Grade Funds (2016 YTD net inflow of $20.906b) and a net inflow of $726.282m into High Yield Funds (2016 YTD net inflow of $1.616b).

BAML’s IG Master Index was unchanged at +123. +106 represents the post-Crisis low dating back to July 2007.

Investment grade corporate bond trading posted a final Trace count of $21.2b on Thursday versus $20.8b on Wednesday and $24b the previous Wednesday.

The 10-DMA stands at $19.9b.

Syndicate IG Corporate-only Volume Estimates for This Week and February

IG Corporate New Issuance

This Week
2/20-2/14

vs. Current
WTD – $11.125b

February 2017
Forecasts

vs. Current
MTD – $61.15b

Low-End Avg.

$18.25b

60.96%

$90.65b

67.46%

Midpoint Avg.

$19.40b

57.35%

$91.96b

66.50%

High-End Avg.

$20.54b

54.16%

$93.26b

65.57%

The Low

$15b

74.17%

$85b

71.94%

The High

$26b

42.79%

$120b

50.96%

The Best and the Brightest” Fixed Income Syndicate Forecasts and Sound Bites for Next Week

I am happy to announce that I had 96% response to today’s “Best & Brightest” survey! That means 23 out of 24 desks. 21 of those participants are among 2017’s YTD top 25 ranked syndicate desks according to today’s Bloomberg’s U.S. IG U.S. Investment Grade Corporate Bond underwriting league table. In fact, 22 of today’s 23 participants finished in the top 25 of last year’s 2016 final IG Corporate Bloomberg league table. The 2017 League table can be found on your terminals at “LEAG” + [GO] after which you select (US Investment Grade Corporates). The participating desks represent 84.38% of all IG dollar-denominated new issue underwriting as of today’s table share percentage which simply means they’re the ones with visibility. But it’s not only about their volume forecasts, it’s also about their comments. This core syndicate group does it best; they know best; so they’re the ones you WANT and NEED to hear from. It’s a great look at the week ahead.

*Please note that these are Investment Grade Corporates only. They do not include SSA issuance unless otherwise noted.

My weekly technical data re-cap and question posed to the “Best and the Brightest” early this morning was framed as follows:

Getting right to it today, here are this week’s numbers entering today’s morning session:

We priced an anemic 57% of this week’s already low syndicate midpoint average forecast or $11.125b vs. $19.40b.

Thus far in February we priced 66.50% of the monthly syndicate projection or $61.15b vs. $91.96b.

All-in YTD IG Corporate and SSA issuance stands at $303.183b!

Wednesday was the fastest pace ever to reach the $300mm mark for all-in IG Corporate and SSA issuance.

The 19 major industry sectors tightened 0.79 bps to 20.37 vs. 21.16 bps also against their post-Crisis lows.

Taking a look at the secondary trading performance of this week’s IG and SSA new issues, of the 20 deals that printed, 17 tightened versus NIP for a 00% improvement rate while 2 widened (10.00%) and 1 were flat (5.00%).

For the week ended February 22nd, Lipper U.S. Fund Flows reported an inflow of $2.566b into Corporate Investment Grade Funds (2016 YTD net inflow of $20.906b) and a net inflow of $726.282m into High Yield Funds (2016 YTD net inflow of $1.616b).

It seems as if syndicate desks have said issuance would increase “the week after next” in each of the last two Friday’s. Now, however, with Corporate America having posted earnings and with most issuers having exited blackouts, expectations are for a much more robust calendar next week. The two bits of potentially market moving data are: Fed Chair Janet Yellen speaks at the Executive’s Club of Chicago on Friday, March 3rd and the Employment Situation for February is scheduled to be released on Friday, March 10, 2017, at 8:30 a.m. (EST).After that there’s the FOMC meeting on Tuesday and Wednesday March 14th and 15th, which is associated with a Summary of Economic Projections and a press conference by Chair Yellen. Blackouts then begin shortly thereafter. The point being – this time, next week really should see very strong issuance across all sectors. But why listen to me let’s go back to the same week in time over the past three years. The results are eye-opening:

2016 – IG Corps: $50.72b Corps + SSA: $61.22b

2015 – IG Corps: $59.03b Corps + SSA: $65.03b

2014 – IG Corps: $50.29b Corps + SSA: $55.18b

We all understand that “past performance is no guarantee of future results” but those are pretty telling statistics right there folks!

The Big Question: Next Wednesday begins the month of March, so today I ask a two-part question “what are your thoughts and numbers for BOTH next week AND March?The “Best and the Brightest” in Their Own Words

No new issues priced today ahead of tomorrow’s all-important FOMC rate decision in which the Fed will likely announce a rate hike of 0.25%. We have no less than 18 major economic data releases tomorrow which should help us read the tea leaves for table-setting come January. The first month of each year is historically a prolific one. January 2017 will be no different. We could see $130-140b price…….and likely more when factoring in SSA issuance! So welcome and enjoy the holiday reprieve while we have it because we’ll be starting all over again and “back to zero” before you can blink in a couple of weeks.

Here’s a review of this week’s five key primary market driver averages for IG Corporates only through Monday’s session followed by the averages over the prior four weeks:

KEY IG CORPORATE
NEW ISSUE DRIVERS

MON.
12/12

AVERAGES
WEEK 12/05

AVERAGES
WEEK 11/28

AVERAGES
WEEK 11/21

AVERAGES
WEEK 11/14

New Issue Concessions

<1.83> bps

4.26 bps

3.53 bps

4.5 bps

3.62 bps

Oversubscription Rates

2.15x

3.68x

3.38x

2.99x

2.78x

Tenors

6 yrs

9.21 yrs

10.84 yrs

12.14 yrs

11.28 yrs

Tranche Sizes

$688mm

$760mm

$711mm

$929mm

$1,039mm

Avg. Spd. Compression
IPTs to Launch

<15.75> bps

<22.24> bps

<17.60> bps

<16.07> bps

<17.69> bps

Indexes and New Issue Volume

Index

Open

Current

Change

LUACOAS

1.26

1.26

0

IG27

68.095

67.827

<0.268>

HV27

136.005

135.56

<0.445>

VIX

12.64

12.72

0.08

S&P

2,256

2,271

15

DOW

19,796

19,911

115

USD

IG Corporates

USD

Total IG (+SSA)

DAY:

$0.00 bn

DAY:

$0.00 bn

WTD:

$2.75 bn

WTD:

$2.75 bn

MTD:

$38.955 bn

MTD:

$44.905 bn

YTD:

$1,283.717 bn

YTD:

$1,623.651 bn

Lipper Report/Fund Flows – Week ending December 7th

For the week ended December 7th, Lipper U.S. Fund Flows reported an inflow of $2.583b into Corporate Investment Grade Funds (2016 YTD net inflow of $41.047b) and a net inflow of $2.034bm into High Yield Funds (2016 YTD net inflow of $6.973b).

6 IG Corporate issuers tapped the dollar DCM today pricing 13 tranches between them totaling $9.15b and bringing the WTD total to nearly 85% of this week’s syndicate midpoint average forecast or $25b vs. $29.45b. The SSA space hosted BNG’s $600mm 3-year for an all-in IG day total of 7 issuers, 14 tranches and $9.75b.

We do know that both Abbott Labs (NYSE: ABT) and Chevron Phillips Chemical Company LLC wrapped their respective investor calls today so they are both clear to “go” from that perspective in terms of issuance. In the current environment, I’m not so sure issuers want to print sizeable deals on a Friday or hold back jumbo deals over the weekend. What’s that mean? Simple. Both could price tomorrow in which case we could see a $20bn or more day tomorrow in our IG dollar DCM. Stay tuned.

Global Market Recap

S. Treasuries – USTs hit overnight but rallied during NY hours and were led by the 30yr.

Happy Friday everyone! The big news today is the FBI’s announcement that it is “re-opening” its probe into the Hilary Clinton private e-mail controversy. Oh my. This election could go down to the wire folks! Or, FBI Director Jim Comey might have found himself boxed into a corner when he issued the late Friday email to Congress, without first determining whether the emails in question are anything new, or whether the only ‘new update’ that Comey shared is that FBI agents determined that HRC assistant Huma Abedin’s email account was installed on a device shared with her former husband and suspected pedophile, Anthony Weiner. Meaning: Nothing really new! A bunch of jerks have in theory, been able to see those emails. But, WikiLeaks already published them! Just another 9th inning curve ball that every media outlet will swing at in the course of the 2016 US Presidential elections!

I think we see $30bn next week. I do have a strong tendency to err to the upside. The next two weeks “could be” challenging thanks to these following obstacles that can typically dampen issuance:

Friday, 11/11 – Veteran’s Day (Federal Holiday, many leave work a bit earlier the day before – Thursday 11/10).

However, I would counter that next week also happens to be the LAST full week before the U.S. Presidential election so issuers may very well want to print before then. Despite all the hoopla about the massive rates sell-off, I simply remind you that we are at May levels. Lest we forget May 2016 is the single most prolific month of IG issuance in history at $213.4b in all-in IG Corporate plus SSA issuance. So, don’t be surprised.

Due to the election, however, ranges could be….well…..VERY rangy! I still think we get $110b in IG Corporate issuance in November.

We had one well-telegraphed $500mm tap of Banco de Bogota’s 6.25% 10-year due 5/12/2026 144a Subordinated Notes price. The amount added to our already record October volume for all-in IG issuance. For all the pertinent data points, please scroll down to the question I posed of the 23 participating top shelf, top gun syndicate desks. In that question lay all the gold nugget technical tidbits you want and need to know about this week’s primary markets and the potential hurdles that lay ahead for next week. Following that, of course, are the very thoughtful responses that I am grateful to have received today from those top tier syndicate operatives. They took their time today with nice soundbites so remember it’s not only about their forecasts for next week and for the month of November, rather it’s about their thoughts. I also take a look at the past decade of November IG new issuance so that you can put the next week’s and month’s numbers into the proper historical context. Of course I have today’s Global Market Re-cap first just below followed by secondary and primary market talking points, the “at-a-glance” IG issuance WTD and MTD volume table and then the “Best and the Brightest” that the world of syndicate has to offer in their own words.

So, relax, it’s Friday! Kick up your feet, read through the “QC” or as CFO of Ford Credit, Marion Harris often does, print it out, staple it together and read it at home at your leisure. It’s all here; it’s all for you AND the guy-in-the-corner does for free………What’s not to like about that!

Below please find my synopsis of everything Syndicate and Secondary from today’s debt capital markets, including the investment grade corporate bond data drill down as seen from my seat here in Syndicate, Sales and DCM.

For the week ended October 26th, Lipper U.S. Fund Flows reported an inflow of $1.701b into Corporate Investment Grade Funds (2016 YTD net inflow of $42.787b) and a net outflow of $48.26m from High Yield Funds (2016 YTD net inflow of $11.070b).

The average spread compression from IPTs thru the launch/final pricing of today’s 1 IG Corporate-only new issue was 30.00 bps.

BAML’s IG Master Index was unchanged at +136. +106 represents the post-Crisis low dating back to July 2007.

Bloomberg/Barclays US IG Corporate Bond Index OAS was unchanged at +131. The “LUACOAS” wide since 2012 is +215. The tight is +135.

Standard & Poor’s Global Fixed Income Research was unchanged at +181. The +140 reached on July 30th 2014 represents the post-Crisis low.

Syndicate IG Corporate-only Volume Estimates for This Week and October

IG Corporate New Issuance

This Week
10/24-10/28

vs. Current
WTD – $34.375b

October 2016

vs. Current
MTD – $102.97b

Low-End Avg.

$24.61b

139.68%

$87.83b

117.24%

Midpoint Avg.

$25.48b

134.91%

$88.59b

116.23%

High-End Avg.

$26.35b

130.46%

$89.35b

115.24%

The Low

$15b

229.17%

$75b

137.29%

The High

$35b

98.21%

$125b

82.38%

“The Best and the Brightest” – Syndicate Forecasts and Sound Bites for Next Week

I am happy to announce that, once again, the “QC” received unanimous responses from the 23 syndicate desks surveyed in today’s Best & Brightest poll. 21 of those participants are among 2016’s top 22 ranked syndicate desks according to today’s Bloomberg’s U.S. IG U.S. Investment Grade Corporate Bond underwriting league table. In fact, all of today’s 23 participants finished in the top 25 of last year’s final IG Corporate Bloomberg league table. The 2016 League table can be found on your terminals at “LEAG” + [GO] after which you select #201 (US Investment Grade Corporates). The participating desks represent 80.96% of all IG dollar-denominated new issue underwriting as of today’s table share percentage which simply means they’re the ones with visibility. But it’s not only about their volume forecasts, it’s also about their comments! This core syndicate group does it best; they know best; so they’re the ones you WANT and NEED to hear from. It’s a great look at the week ahead.

*Please note that these are Investment Grade Corporates only. They do not include SSA issuance unless otherwise noted.

The question posed to the “Best and the Brightest” early this morning was prefaced with the following note to 30+ book-running fixed income syndicate gurus throughout Wall Street:

We some-what quietly experienced the highest volume October on record this week for all-in IG Corporate and SSA supply. If Monday is a decent volume day, October 2016 will become the 10th busiest month of all-time for all-in issuance. WTD, we entered today’s Friday session 33% above the syndicate midpoint average estimate for the week or $33.875b vs. 25.48b. We also eclipsed the MTD syndicate forecast by over 15% or $102.47b vs. $88.59b. Those are both for IG Corporates only. This week’s M&A calendar grew by $132.4b thanks to Qualcomm’s $47b acquisition of NXP and AT&T’s mega $85.4b purchase of Time Warner. Both will meet regulatory scrutiny but that’s a lot of debt just between those two. The 14 highest profile M&A deals on the calendar now total $323.3b. Debt anyone? Next week looks like it could be sizeable, but there are some Central Bank hurdles to get over. Here they are:

For the week ended October 26th, Lipper U.S. Fund Flows reported an inflow of $1.701b into Corporate Investment Grade Funds (2016 YTD net inflow of $42.787b) and a net outflow of $48.26m from High Yield Funds (2016 YTD net inflow of $11.070b).

Week-on-week, BAML’s IG Master Index widened 1 bp to +136 vs. last Friday’s +135 close. Spreads across the four IG asset classes also widened 1 bps to 28.25 vs. 26.25 as measured against their post-Crisis lows. Looking at the 19 major industry sectors, spreads widened 0.73 bps to 32.84 vs.32.11 also against their post-Crisis lows.
November kicks off next Tuesday so I’d like your thoughts and numbers for BOTH November AND next week. It’s our last full week before the Election and it should be a big one as a result.

Many thanks for your responding with projected volumes; wishing you and yours a great weekend! -Ron”

(responses to the weekly QC survey of projected deal activity for the upcoming week are available only to QC distribution list recipients)

Syndicate IG Corporate-only Volume Estimates for Next Week & November

IG Corporate New Issuance

Next Week
10/31-11/04

November 2016

Low-End Avg.

$24.26b

$90.70b

Midpoint Avg.

$25.13b

$92.11b

High-End Avg.

$26.00b

$93.52b

The Low

$15b

$71b

The High

$35b

$110b

A Look at How the Voting Brackets Broke-Out for Next Week & November

Next Week
10/03-11/04

November

1: 15-20b

1: 71b

4: 20b

1: 75-85b

5: 20-25b

2: 80b

1: 23b

4: 85b

4: 25b

1: 85-90b

2: 25-30b

1: 80-100b

4: 30b

1:90b

2: 35b

1: 85-100b

1: 90-95b

2: 95b

5: 100b

1: 100-110b

2: 110b

“Knowing the Past for the Future” – A Look at a Decade’s Worth of November IG Corporate and SSA Issuance

Across the past ten years, all-in dollar-denominated IG Corporate plus SSA November new issuance averaged $95.72b.

Over the past five years, all-in IG November new issuance averaged $120.05b.

Over the past three years, all-in IG November issuance has averaged $118.51b.

The past three years of November saw IG Corporate onlyissuance average $105.74b.

November SSA issuance has averaged $12.77b across the last three years.

Please note that the below weekly NICs and tenors, tranche sizes and average spread compression numbers differ slightly from those included in my early morning survey question to syndicate heads due to the fact that later in the day I was able to incorporate the final data from today’s Banco de Credito tap into the averages. For that reason average weekly NICs went from <0.98> bps to <0.51> bps, etc. Bid-to-cover rates remained unchanged. Thank you! –Ron

Here’s this week’s day-by-day re-cap of the five key primary market driver averages for IG Corporates followed by this week’s and the prior three week’s averages:

Cited by Wall Street Letter in each of 2014, 2015 and 2016 for “Best Research / Broker-Dealer”, the QC observations is one of three distinctive research content pieces produced by Mischler Financial Group. The QC is a daily synopsis of everything Syndicate and Secondary as seen from the perch of our fixed income trading and debt capital markets desk and includes a comprehensive “deep dive” with optics on the day’s investment grade corporate debt new issuance and secondary market data encompassing among other items, comparables, investment grade credit spreads, new issue activity, secondary market most active issues, and upcoming pipeline.

7 IG Corporate issuers priced 13 tranches between them totaling $8.525b bringing the WTD total to $33.875b or 33%above this week’s syndicate midpoint average estimate calling for $25.48b. What’s more the MTD total is now $102.47b surpassing the October syndicate midpoint average forecast of $88.59b by over 15%. The all-in IG MTD volume is now $149.22b furthering the new all-time October issuance record for IG Corporate plus SSA supply by 20.21%. The old October all-in record was $124.131b set in 2015.

The Central Banks around the world are currently getting a bad rap. Central Banks are getting blamed for the low growth low inflation environment. I may not agree with all the policies of the Central Banks but at least they are trying. Where is the fiscal stimulus? If the market wants to point fingers for the current environment it should be at the governments & not the Central Banks.

Syndicate IG Corporate-only Volume Estimates for This Week and October

IG Corporate New Issuance

This Week
10/24-10/28

vs. Current
WTD – $33.875b

October 2016

vs. Current
MTD – $102.47b

Low-End Avg.

$24.61b

137.65%

$87.83b

116.67%

Midpoint Avg.

$25.48b

132.95%

$88.59b

115.67%

High-End Avg.

$26.35b

128.56%

$89.35b

114.68%

The Low

$15b

225.83%

$75b

136.63%

The High

$35b

96.79%

$125b

81.98%

Below please find my synopsis of everything Syndicate and Secondary from today’s debt capital markets, including the investment grade corporate bond data drill down as seen from my seat here in Syndicate, Sales and DCM

Have a great evening!
Ron Quigley, Managing Director and Head of Fixed Income Syndicate

NICs, Bid-to-Covers, Tenors and Sizes

Please note: I always try to find ways to incrementally increase and improve the “QC” value-added proposition. So, this evening I have added a fifth key primary market driver average to the below daily table. The new category tracks the daily average spread compression from IPTs to the launch of each day’s IG Corporate and IG-rated preferreds when applicable. I always use that number on calls with issuers, follow-ups and in fact, on my market update calls wherein Mischler has been a joint lead. Treasury/Funding finds it valuable as do syndicate desks and accounts. So, there it is – yet another reason to keep reading the “QC.”

Here’s a review of this week’s key primary market driver averages for IG Corporates only through Wednesday’s session followed by the averages over the prior four weeks:

KEY IG CORPORATE
NEW ISSUE DRIVERS

MON.
10/24

TUES.
10/25

WED.
10/26

AVERAGES
WEEK 10/17

AVERAGES
WEEK 10/10

AVERAGES
WEEK 10/03

AVERAGES
WEEK 9/26

New Issue Concessions

2.67 bps

1.75 bps

<4.36> bps

3.31 bps

1.87 bps

4.36 bps

2.71 bps

Oversubscription Rates

2.52x

2.77x

2.13x

3.05x

3.28x

4.20x

3.52x

Tenors

6.75 yrs

5.71 yrs

5.64 yrs

9.16 yrs

11.51 yrs

12.16 yrs

10.51 yrs

Tranche Sizes

$985mm

$700mm

$964mm

$1,137mm

$640mm

$523mm

$646mm

Avg. Spd. Compression
IPTs to Launch

<15.20> bps

<15.79> bps

<16.05> bps

New Issues Priced

Today’s recap of visitors to our IG dollar Corporate and SSA DCM:

For ratings I use the better two of Moody’s, S&P or Fitch.

IG

Issuer

Ratings

Coupon

Maturity

Size

IPTs

GUIDANCE

LAUNCH

PRICED

LEADS

Buckeye Partners LP

Baa3/BBB-

3.95%

12/01/2026

600

+250a

+220a (+/-5)

+215

+215

BARC/JPM/STRH/WFS

Equate Petrochemical Co.

Baa2/BBB+

3.00%

3/03/2022

1,000

MS +low 200s
+212.5

MS +212.5a

MS +195

+198.8

CITI/HSBC/IMI/JPM/MIZ/MUFG
NBK/SMBC

Equate Petrochemical Co.

Baa2/BBB+

4.25%

11/03/2026

1,250

MS +hi 200s-300
or +293.75

MS +287.5a

MS +270

+255.2

CITI/HSBC/IMI/JPM/MIZ/MUFG
NBK/SMBC

PNC Financial Services

Baa2/BBB-

5.00%

PerpNC10

525

5.125%a

5.00%a (+/-5)

5.00%

3mL+330

CITI/JPM/MS/PNC

Sirius International Group

BBB/BBB-

4.60%

11/01/2026

400

+300a

+285 the #

+285

+285

ABC/BOCOM/CITI/HSBC/HUARONG
HSBC/JPM/SHK/TD

Trinidad Generation

BBB/BBB-

5.25%

11/04/2027

600

+400a

+375a (+/-12.5)

+362.5

+362.5

CS/SCOT

United Technologies

A3/A-

FRN

11/01/2019

350

3mL+equiv

3mL+equiv

3mL+35

3mL+35

BAML/CITI/GS/MIZ/MS + 5 (p)

United Technologies

A3/A-

1.50%

11/01/2019

650

+70a

+55a (+/-5)

+50

+50

BAML/CITI/GS/MIZ/MS + 5 (p)

United Technologies

A3/A-

1.95%

11/01/2021

750

+80a

+70a (+/-5)

+65

+65

BAML/CITI/GS/MIZ/MS + 5 (p)

United Technologies

A3/A-

2.65%

11/01/2026

1.150

+105a

+85a (+/-2)

+83

+83

BAML/CITI/GS/MIZ/MS + 5 (p)

United Technologies

A3/A-

3.75%

11/01/2046

1.100

+145a

+120a (+/-2)

+118

+118

BAML/CITI/GS/MIZ/MS + 5 (p)

Wake Forest Medical Ctr.

A2/A

3.093%

6/01/2026

75

+135a

+130a (+/-5)

+125

+125

GS/MS/WFS

Wake Forest Medical Ctr.

A2/A

4.175%

6/01/2046

75

+165a

+160a (+/-5)

+157.5

+157.5

GS/MS/WFS

SSA

Issuer

Ratings

Coupon

Maturity

Size

IPTs

GUIDANCE

LAUNCH

PRICED

LEADS

JBIC

A1/A+

2.00%

11/04/2021

1,000

MS +65a

MS +64a

MS +63

+65.4

BAML/JPM/MIZ/NOM

JBIC

A1/A+

2.25%

11/04/2026

1,800

MS +67a

MS +65a

MS +64

+49.6

BAML/JPM/MIZ/NOM

OKB

Aa1/AA+

FRN

11/04/2019

600

3mL+17a

3mL +16a

3mL +16

3mL+16

GS/HSBC

Indexes and New Issue Volume

Index

Open

Current

Change

LUACOAS

1.30

1.31

0.01

IG27

75.345

76.257

0.912

HV27

162.61

162.38

<0.23>

VIX

14.24

15.36

1.12

S&P

2,139

2,133

<6>

DOW

18,199

18,169

<30>

USD

IG Corporates

USD

Total IG (+SSA)

DAY:

$8.525 bn

DAY:

$11.925 bn

WTD:

$33.875 bn

WTD:

$37.275 bn

MTD:

$102.47 bn

MTD:

$149.22 bn

YTD:

$1,166.606 bn

YTD:

$1,493.84 bn

Lipper Report/Fund Flows – Week ending October 19th

For the week ended October 19th, Lipper U.S. Fund Flows reported an inflow of $2.431b into Corporate Investment Grade Funds (2016 YTD net inflow of $41.086b) and a net outflow of $160m from High Yield Funds (2016 YTD net inflow of $11.119b).

Over the same period, Lipper reported a net inflow of $514.8m into Loan Participation Funds (2016 YTD net outflow of $1.956b).

Quigley’s Corner 09.21.16 No Prints and No Rate Increases; Corporate Debt Issuers Sit it Out

Investment Grade New Issue Re-Cap

A Big Red Zero – Land of the Rising “None” as BoJ Keeps Rates at <0.1%> & Introduces More Shifts to Policy

“Fed” Up with Rates, FOMC Holds; November Increase Has No Chance Pre- Election and Santa Claus is Coming to Town…with Coal?

All You Want and Need to Know About Today’s Fed Decision

In Janet’s Words

IG Primary & Secondary Market Talking Points

NICs, Bid-to-Covers, Tenors and Sizes

New Issues Priced

New Issue Volume

Lipper Report/Fund Flows – Week ending September 14th

Investment Grade Corporate Spreads (by Rating/Industry)

New Issue Pipeline

M&A Pipeline

Economic Data Releases

Rates Trading Lab

Tomorrow’s Calendar

It was a no print day today as corporate debt issuers respected both the impact of the BoJ and FOMC.

Not so fast my friends…..not so fast! It’s not exactly a “Dewey Defeats Truman” moment. Still, let’s call it like it is folks – I did say “the next best thing to having tomorrow’s newspaper today is the ‘QC’”. Then on Monday, September 19th and alluding to today’s BoJ and FOMC rate decisions, I wrote, “Fed Holds; BoJ Cuts Rate and Then Some.” Well, I guess it’s not “tomorrow’s newspaper today” but I still think it’s the “next best thing to it.” The Fed Held, the BoJ introduced new fringy though convoluted easing details (“and then some”) but the BoJ kept rates unchanged. Two out of three isn’t bad, but that’s why it’s “the next best thing.” If I played baseball, I’d be in the Hall of Fame with a .666 average. Joking aside, a Fed that infers raising rates by December should have hiked rates today, but they didn’t. This is more of the same readers. Look for Fed members – both voting and non-voting – to continue giving speeches and appearing on television to opine about the rate flux that has restricted so many from doing so much. The street is the leader; the Fed is the ultimate laggard. It’s how it is. Today was more of the same. No surprise at all. The government should consider issuing a gag order on any and all Fed-speak in between meetings for all members, both voting and non-voting. They only confuse the situation and shock markets.

First up, let’s look at what the BoJ did while we were in REM sleep this morning:

A Big Red Zero – Land of the Rising “None” as BoJ Keeps Rates at <0.1%> & Introduces More Shifts to Policy

Central Banks from the FOMC to the BOE and from the ECB to the BoJ all seem to be pointing to the downside risks to continued rate cuts while at the same time highlighting that monetary policy needs to be substantially accommodative while calling on governments to share more of the economic burdens. Here’s what’s clear: growth is anemic to non-existent, inflation unchanged to nowhere, accommodative policies are manifesting themselves in new policy twists and turns and big government needs to get more involved. Hmmm…..sounds like things aren’t quite working out, eh?

o Will cap 10-year yields at 0.00% by continuing to buy 10yr JGBs implying that the BoJ must continue intervening to prevent borrowing costs from rising and to ensure that it can borrow for a decade for free.

o Changed its policy from a focus on a base money target to controlling the yield curve.

oPledged to maintain its government bond-buying in line with ¥80 trillion annually while buying fewer long-dated maturities hoping to pump up long-term interest rates thereby helping banks boost profits. There was no expansion of its current quantitative easing program.

Will this new approach be effective? Only time will tell. It certainly is a shift in monetary policy to control the yield curve. It is NOT a bazooka by any stretch and more like “fiddling around the edges.” As for the 2.00% target? Folks, we all know that’s a loooong way off. Market participants have a lot of questions with many sharing that the “BoJ should’ve just cut rates again.” Equity markets loved the news. The DOW closed up 163, the S&P was in the black 23, the VIX compressed over 2.5 and CDX27 tightened 3.2 bps.

“Fed” Up with Rates, FOMC Holds; November Increase Has No Chance Pre- Election and Santa Claus is Coming to Town…with Coal?

The Fed held rates albeit the subsequent press conference was more optimistic, if one can call it that, saying the economy appeared “slightly balanced” and “the case for an increase in the fed funds rate strengthened but decided, for the time being to wait for further evidence of continued progress toward its objectives.” You all know about the myriad global event risk factors out there. There are so many that on any given day in our inextricably global-linked world economy, should one or several of them get worse, which is entirely plausible-to-likely, the Fed can skirt around a hike by once again pointing to global events, as they have in the past, to justify standing down. In fact, in its statement Chair Yellen said, “we will closely monitor inflation and global developments.” What’s more, the next FOMC meeting will be held on November 1srt and 2nd and is not associated with a Summary of Economic Projections or a press conference by Yellen. It is highly unlikely that the Fed raises rates in November given that the meeting will take places 6 days before one our nation’s most tumultuous and raucous elections. Last year saw one rate hike to close out 2015 at its December meeting. Santa Claus will be coming to town early at the year’s last meeting of 2016 held December 13th-14th …………..but don’t be surprised to find coal in the stocking.

Folks, Q3 is about over. You hear that sound? That’s the sound of trucks? They’re backing up to print between now and Election Day – BIG TIME. 12 IG issuers are in the pipeline with a whole lot of M&A deals getting closer.

Here’s All You Want and Need to Know About Today’s Fed Decision

o The FOMC kept rates unchanged as three officials dissent for a hike.

Yesterday I wrote, “the session finished with only those two deals priced totaling $1.2b with a promise from the guy-in-the-corner that tomorrow WILL be a VERY busy day!” Well tomorrow is today and true to my word we had a blockbuster. I then wrote, “We are only $20.822bn away from $1 trillion in IG Corporate-only issuance YTD. Last year we set a new IG Corporate-only record by reaching the $1 trillion mark on Thursday, October 1st. (see your incoming “Quigley’s Corner” 9-30-2015). We’d shatter that record by nearly three weeks if it happens tomorrow!”

I am happy to report that we reached the $1 trillion dollar mark in IG Corporate-only volume at the earliest stage in any year, shattering last year’s record set on October 1st by 18 business days or 2 weeks and 3 days.

There remain 12 new issues in the imminent pipeline either currently road showing, about to conduct investor meetings/calls or have already wrapped those up. So, there’s plenty of business to go not counting M&A deals of which Shire looms large.

IG Corporate New Issuance

This Week
9/12-9/16

vs. Current
WTD – $23.194b

September 2016

vs. Current
MTD – $75.654b

Low-End Avg.

$35.83b

64.73%

$115.45b

65.53%

Midpoint Avg.

$36.91b

62.84%

$116.02b

65.21%

High-End Avg.

$38.00b

61.04%

$116.59b

64.89%

The Low

$30b

77.31%

$80b

94.57%

The High

$46b

50.42%

$150b

50.44%

Here’s how it looked:

Category

Totals

# of IG Corporate Issuers

12

# of IG Corporate Tranches

25

Total IG Volume

$22.194b

# of SSA Issuers

5

# of SSA Tranches

5

Total SSA Volume

$9.25b

Total Amount of All-in Issuers

17

Total Number of All-in Tranches

30

All-in Corps + SSA Amount

$31.244b

Here’s a look at some other records:

o $31.594 ranks as the 5th highest volume day in history for IG Corps plus SSA.

It was a subdued day today for the IG dollar primary markets as eager anticipation surrounded ECB President Mario Draghi’s latest and greatest tool kit inventions and implementations. No multi-tranche transaction would price in the face of the predictably unpredictable ECB today. More on that in a bit.3 IG Corporate issuers printed 5 tranches between them totaling $2.7b assisted by the SSA’s lone Republic of Panama’s $1b 12-year bringing the all-in IG day total to 4 issuers, 6 tranches and $3.7b.

Super Mario Day! You Gotta Be Kiddin’ Me, Right?……….Wrong!

Now before you think I’ve gone completely nuts, you need to read this. It’s from the Mario Day website. You know, the REAL Super Mario, as opposed to the impostor at the ECB. It reads, “In recognition of everyone’s favorite pizza-loving Nintendo character, today, Thursday, March 10th is “Mario Day.” I kid you not. It continues, “..with plenty of ideas, games and activities to choose from, such as fancy dress parties and mushroom stomping competitions, you can be sure to make “Mario Day” a day to remember.” I repeat, this is NOT a joke.

“Back it up! No wait…Get a Bigger Truck……..Draghi’s Doing the Driving!”

….However, I was thinking that perhaps in a frenzy of jealousy/envy the other Super Mario…. you know, this guy:

…I might have taken it all a bit too personally. For today was all about the ECB’s Mario Draghi. Here’s a nice sound bite from friend, former BNP Paribas colleague and Bloomberg’s First Word European Primary Market Strategist, Paul Cohen, who nicely sums up today’s Euro IG primary markets, “There were no syndicated primary deals in Europe today as the market awaited the ECB’s latest rates decision. It’s the first day without a deal since February 9th and ends 8 consecutive business days of non-financial corporate issuance.” As someone quipped post this morning’s ECB conference, “I think it’s time to back the truck up, or maybe even get a bigger truck. Mr. Draghi is doing the driving.” And boy, did he do some driving today. Let’s take a look:

My Take on the EU? Did Someone Say, “Nightmare?” E-Break?

The ECB cut its three key interest rates and will buy investment-grade euro-denominated corporate bonds. The ECB’s main refi rate was lowered by 5 bps to 0%, its marginal lending rate was also cut by 5 bps to 0.25%; its deposit rate was cut by 10 bps to -0.4%. The ECB also said it will increase the pace of its monthly asset purchases by €20b to €80b from €60b starting in April, and will add investment-grade euro denominated bonds issued by non-bank corporations to the list of eligible assets. The ECB CANNOT buy richer yields than the ECB’s deposit rate. So, by moving their deposit rate to -0.4% from -0.3% and by increasing their monthly purchases to €80b from €60b it necessitates that they start to buy corporates. Hence, the announcement of their new Euro-denominated corporate bond purchase tool.

It’s as if Draghi tore a page out Mario Day festivities because his ECB announcement certainly provided plenty of ideas, games and activities to choose from. There were no fancy dress parties nor were there any mushroom stomping competitions but Draghi’s “tool kit” was introduced “on-the-fly” not after a long trial and error period as in R&D. What he unveiled to the world has never been done before…….for good reason – it’s a desperate move to salvage the unsalvageable. As you all know here, the EU is facing a terrible aging population dilemma, an immigration issue resulting in border controls and national demarcation lines being re-introduced, spreading Nationalism and a terrorist concern that resulted in today’s French travel advisory warning on the British government’s website:

“There is a high threatfrom terrorism. Due to ongoing threats to France by Islamist terrorist groups, and recent French military intervention against Daesh (formerly referred to as ISIL), the French government has warned the public to be especially vigilant and has reinforced its security measures.”

As one longtime trusted market relationship wrote to me this afternoon, “first off, I didn’t think there was that much “non-bank” corporate debt in the euro-universe! The Committee will decide if the asset (possibly a Financial, but not a BANK?) is eligible for purchase. I foresee corporate bond spreads tightening, but by how much and will they go negative?” Now, it seems however, that the ECB is a player in the market and companies are directing their fixed payments to them. In other words, they are being paid to hold specific companies’ debt — of their choosing. This comment sounds rather like “Sure, I’ll take that off your hands — for a price.” The role of the ECB seems even more questionably large – call it “outsized” in that they’re setting rates, regulating banks (SSM) and now playing the market?

That’s not that far off folks. Living for the moment is never a good plan. Let’s think, however, about the likely resultant paths for the EU. There is NO sign of inflation in the EU. There are signs of DEFLATION. History shows that the “D” word is a country killer and a war creator. Draghi gets to be Super Mario for another day and rates/currencies traders who make a living moment by moment, have more movement to capitalize on but, in the end, this means the EU is more of a disaster than everyone thought. (I am an exception as I’ve always maintained that it’s full speed ahead for them straight into a brick wall). It’s desperation time. As European banks suffer, today’s news should come as yet another major alarm as to just how bad the situation is over there. Negative rates mean that the problem will persist perhaps forever. Yes, I did say “forever.” EU leadership began at the onset of the Financial Crisis playing “kick-the-can” with good old fashioned procrastination and government and bureaucratic delay tactics until that game became an embarrassment. Now it’s a whole new ball-game. They are changing many more rules of engagement to postpone the inevitable. It will end badly…..really badly. The Schengen Agreement has already fallen to the wayside and that’s one the EU’s two legs that it stands on. The other leg being the single currency itself. EU problems are profoundly foundational. They need to raise the house and re-do their foundation and then reset the broken home. It’s THAT bad. I still maintain that the EU crumbles into two-parts a Northern Euro and a Southern Euro. Been saying that for over five years.

It’s a proverbial E-Break.

So, where’s that leave us? Well, despite the comedic caucuses taking place in this election year, the Unites States of America is the world’s finest tuned engine. It’s the best story and most stable of the myriad global event risk factors out there. As for our IG primary markets, it’s very clear. Perhaps, clearer than ever before. Your eyes should be focused on the 1.93% CT10 yield. Digest the fact that across the 4 major IG asset classes spreads have tightened 22.25 bps in 3 ½ weeks since February 12th. Low UST rates plus tightening spreads equals one thing readers [treasurers, bankers and syndicate managers] and simply put: PRINT NOW.

Global Market Recap

ECB Meeting/Draghi: ECB pulls out all stops & what was Draghi thinking?

Economic – Claims data continues to impress but today belonged to the ECB/Draghi.

Currencies – Big day for Euro & bad day for DXY Index with wide trading ranges.

Commodities – Crude oil down and gold up.

CDX IG: -4.68 to 91.53

CDX HY: -15.97 to 462.32

CDX EM: -3.47 to 333.40

IG Primary Market Talking Points

KKR & Co. LP upsized today’s $25 par PerpNC5 to $300mm from $150mm.

For the week ended March 10th, Lipper U.S. Fund Flows reported an inflow of $2.176b from corporate investment grade funds (2016 YTD net outflow of $3.961b) and a net inflow of $1.796b from high yield funds (2016 YTD net inflow of $4.403b).

The average spread compression from IPTs thru the launch/final pricing of today’s 5 IG Corporate-only new issues and one IG-rated Preferred was 25.90 bps.

Syndicate IG Corporate-only Volume Estimates for March

IG Corporate New Issuance

March 2016

vs. Current
MTD – $61.12b

Low-End Avg.

$115.59b

52.88%

Midpoint Avg.

$116.13b

52.63%

High-End Avg.

$116.67b

52.39%

The Low

$100b

61.12%

The High

$150b

40.75%

Have a great evening!

Ron Quigley

Below please find my synopsis of everything Syndicate and Secondary from today’s debt capital markets, including the investment grade corporate bond data drill down as seen from my seat here in Syndicate, Sales and DCM.(more…)

One IG-rated 30NC5 $25 par Notes transaction for Senior Housing Properties Trust priced today totaling $250mm. The deal was upsized from $100mm. We have now officially gotten on the WTD IG Corporate leaderboards with today’s print albeit we’ve priced a mere 1.50% of this week’s syndicate midpoint average forecast or $250mm vs. $16.70b. Talk about volatility! Looking at yesterday morning’s markets compared to this morning’s captures the tremendous volatility we’ve been seeing lately. Volatility used to promote profitability but our new world order has been so restrictive and over-regulated that it’s been made more difficult to generate returns in these kinds of markets. The severe lack of stability has also resulted in 6 no print non-Friday’s year-to-date. That annualizes out to 52 for the year at the current pace! It implies that when stability returns we have to beware of bottlenecking and congestion in our primary markets as issuers flock to print. Until then the morning “Go/No Go” calls are turning into more like “Market Update Calls” as there are myriad market movements to assess and digest. Many issuers have shelved their deals until further notice. According to Informa Global Markets, “YTD FIG new issue spreads have gapped out a resounding average 38 bps versus their initial pricing spread levels. Conversely, non-FIG and non-Energy YTD new issue spreads levels have leaked out just under 4 bps.”

Yesterday Market Update Calls (and/or Go/No Go’s if there were any) probably sounded a bit like this, “Good morning everyone! I’ll just dive in to the carnage here this morning. I think that’s the appropriate phraseology. First off, in Asia overnight treasuries rallied in Tokyo, sold off in London and started to rally back in New York. Volatility was due to the fact that the 10-year JGB is now trading below zero which marks a first time ever event in Japan and joins other EU instruments with negative yields. U.S. futures opened down 135 while the seven major European exchanges are down an average 2% with oil falling back well below $30 per barrel. Speaking of oil, just yesterday (Thomson Reuters’ Reporter Hilary Flynn wrote in a story Edited by TR’s Natalie Harrison), “average spreads on junk-rated U.S. energy bonds touched their highest levels ever on Monday as oil prices remained under pressure and as bonds of Chesapeake Energy tumbled. Energy spreads widened by 113bps to T+1851bp – the biggest one day move in more than 13 years – according to Bank of America Merrill Lynch data, with the sector yielding 19.73%. Oil has severely impacted FIG equity prices and credit spreads as the big banks have large exposures to the energy sector that is, in turn, stressing cash levels.” Spread levels on YTD FIGs widened an average 38 bps versus their new issue spread levels while non-FIG and non-Energy Industrial new issue moved out just under 4 bps YTD. Despite low UST yields that went from 2.05% two-and-a-half weeks ago to 1.73%, corporate spreads have widened against that. In fact, many dealers may have likely rate locked at 2.00% and any issuance inside here could provide highly undesirable double loss on further credit spread widening and we could potentially be looking at a false Treasury bottom here.

Conversely today opened up with stronger market tone with S&P futures up and EU exchanges 2.00% in the black, still, markets experienced another volatile day all told.

Another major issue playing on markets that’s almost lost in the mix of so much market moving news and directly correlated to China’s slow growth are the Emerging Markets. Friend and former colleague Dr. Scott MacDonald wrote in The National Interest that EM capital markets that have been essentially shut down coming off a year, 2015 that “witnessed net capital outflows of an estimated $735 billion….the first net outflows since 1988.” EM nations are even more concerned now that the Fed is talking higher U.S. interest rates and as the USD strengthens thereby increasing the cost of dollar-denominated debt. With higher costs of debt there will be “less capital available for infrastructure development, tighter budgets and real risks to many of the social gains made over the past decade in much of Asia, Africa and Latin America.” He continued, “The global economy is not in a good place. One of the drivers of global economic growth over the past decade has been Emerging Markets. That is now at risk. Combined with competitive currency devaluations, different directions in monetary policy (the U.S. verses the European Central Bank and Bank of Japan), the use of increasingly unconventional monetary policies (negative interest rates, quantitative easing and forward guidance) and risky geopolitical frictions (Russia and the West over Ukraine and Russia and Turkey over Syria), policy coordination among G20 countries has generally fallen apart.” I could continue the geopolitical list to include tensions in the South China Seas that are about to increase with the U.S. and India agreeing to a joint strategic operation in that very area; MENA dislocation; the fear of spreading Nationalism and increased terror level threats throughout the world and particularly Europe. The EU one step closer to approving suspension of the Schengen Agreement by mandating enforced borders for a period of at least two years, slow-growth China and its myriad repercussions not to mention a U.S. election year and the all-important global central bank monetary policies.

The point is clear – the climate for issuance is just not there. Having said that as we try to uncover new clearing levels we look back at AT&T’s $6b 4-part that came on Friday, January 29th and well, to be quite frank, the issuer and leads look like geniuses given that spreads have only widened an average 7.5 bps across those four tranches. Now we don’t have the benefit of tomorrow’s newspaper today but certain issuers (FIGs in particular) will require revised IPTs to get done in hear if they should decide to go at all. One reassuring sign was today’s Mitsubishi UFJ Financial Group, Inc. (NYSE:MTU) (A1/A) announcement that it mandated Morgan Stanley and MUFG to arrange investor calls in the U.S., Europe and Asia slated to begin on Monday, February 15th in preparation for a dollar-denominated Senior Unsecured Holdco Notes transaction. A global call was also scheduled to take place on Friday, February 12th from 11am ET to noon. Joint active leads/books are MS and MUFG with J.P. Morgan serving in a passive role. MUFG filed to offer Fixed and FRN Senior Notes. So there is obviously business to get done but it’s a question of timing.

In readjusting starting IPTs in preparation for a would be FIG transaction, for example, it’s important to secure clearing levels palatable for the issuer that simultaneously offer an appropriate concession to investors in order to secure and hold together anchor orders. As risk increases investors ask for more in return to participate. The flip side of that equation is that new IG Corporate product has become scarce, already trailing last year’s IG supply at this point in the new year by over 13%. Issuers leading the charge will provide highly desired product to sell into voracious appetite for some of the safer haven corporate names offering much more attractive yields than current USTs. The CT10 for example is yielding 1.68% as of 4:15pm ET today. So, will the global money managers still be there? Of course they will but at what spread levels will they hold together or will new supply, when it eventually comes suffice?

The strong recommendation these past couple of weeks seems to have been to keep a focused eye on spread levels, market conditions and have as many market calls as issuers, syndicate desks and bankers require. Rather than get a one-day bounce before declaring “risk on” the new norm has been to wait for a couple to a few days of stability before announcing that “neutral” to “positive” or rather “stable” market tone has returned to warrant further issuance. The key word here being “sustainability.”

In the span of two-and-a-half weeks the UST 10-year shed 37 bps moving from yielding 2.05% to 1.68%. With rate locks having taken place at 2.00% the potential for investment banks to suffer two-sided losses (new issue spreads gapping wider post pricing in a volatile market combined with subsequent wider Treasury levels that might just be sitting at a false artificial levels today, the environment is not exactly palatable for those pricing deals. As for the energy complex and FIGs with that exposure, WTI crude has now officially seen five consecutive losing sessions closing down 2.11% to $27.35 per barrel.

So, it’s more than wise to look for back-to-back days of at least stable markets. Stable could mean “neutral” or “flat” to “improved.” The volatility that’s defined 2016 YTD so far has been so extreme that syndicate desks need to be confident that the window is, in fact, open for issuers to get deals done in the right environment and with a high quality book. They are as sensitive to new deals holding together as issuers are and they want what’s the best for Companies involved. Today’s Baa3/BBB- rated 30NC5 $25 par Notes transaction for Senior Housing was underwater with a $24.45 bid despite being upsized given good demand. Every deal in here will be watched by all market participants and will have an impact on deciding when the timing is right.

Considering that Fed Chair Janet Yellen has presented her Semiannual Monetary Policy Report to the Congress’ Committee on Financial Services throughout today and continues on Thursday before the Senate’s Committee on Banking, Housing and Urban Affairs, there is a lot of room for more volatility given Fed speak and House/Senate Q&A. Although this Friday is not technically an early close for markets and though we have seen more prints on Friday’s YTD than not, market participants will assuredly be leaving desks a bit earlier given the upcoming long President’s Day weekend. Which beckons “is it wise to carry new positions into a long weekend given the global backdrop?”

But have hope, there’s lots of business to eventually get done. 64.6% of the S&P 500 has reported earnings since January 4th, and the proportion of earnings beats to misses stands at 3.2: 1, while the proportion of revenue beats to misses is about even at 1: 1. Growth remains lackluster when compared to the same period a year ago.

Fed Chair Yellen was the focal point today and I have to say she did a masterful job all things considered. Yellen admitted the environment has taken a turn for the worse since the FOMC raised rates in December for the first time in 9 years. She stated financial conditions have become less supportive and also added that it’s too early to measure the impact of recent YTD global events on the economy (China, Europe, economic data, etc). Yellen had a message for the folks in the four rate hike camp this year (100 bps) and those that priced out any rate hikes this year. The message was clearly that four rate hikes are not happening in 2016 but to take all rate hikes off the table in the first week in February is a mistake. The Fed will hike rates if the economy and markets give them the opportunity.

The average spread compression across today’s 1 IG Corporate-only new issues was 6.3125 bps from IPTs to the launch.

Syndicate IG Corporate-only Volume Estimates for This Week and February

IG Corporate New Issuance

Next Week
2/08-2/12

vs. Current
WTD – $0.25b

February 2016

vs. Current
MTD – $6.275b

Low-End Avg.

$15.29b

1.64%

$90.9375b

$6.90b

Midpoint Avg.

$16.70b

1.50%

$92.1875b

$6.81b

High-End Avg.

$18.12b

1.38%

$93.4375b

$6.72b

The Low

$5b

5.00%

$60b

$10.46b

The High

$25b

1.00%

$110b

$5.70b

Have a great evening!

Ron Quigley

Below please find my synopsis of everything Syndicate and Secondary from today’s debt capital markets, including the investment grade corporate bond data drill down as seen from my seat here in Syndicate, Sales and DCM.

NICs, Bid-to-Covers, Tenors and Sizes

Here’s a review of this week’s key primary market driver averages for IG Corporates only through Wednesday’s session followed by the averages for the prior four weeks:

KEY IG CORPORATE
NEW ISSUE DRIVERS

MON.
2/09

TUES.
2/10

WED.
2/11

LAST WEEK’S
AVERAGES

AVERAGES
Week 1/25

AVERAGES
Week 1/18

AVERAGES
Week 1/11

New Issue Concessions

N/A

N/A

N/A

7.45 bps

21.77 bps

14.25 bps

12.66 bps

Oversubscription Rates

N/A

N/A

N/A

3.01x

2.71x

1.96x

2.39x

Tenors

N/A

N/A

N/A

8.19 yrs

7.43 yrs

5.33 yrs

7.41 yrs

Tranche Sizes

N/A

N/A

N/A

$548mm

$940mm

$1,235mm

$1,901mm

New Issues Priced

Today’s recap of visitors to our IG dollar Corporate and SSA DCM:

Please note that for ratings I use the better two of Moody’s, S&P or Fitch.

IG

Issuer

Ratings

Coupon

Maturity

Size

IPTs

GUIDANCE

LAUNCH

PRICED

LEADS

Senior Housing Prop. Trust

Baa3/BBB-

6.25%

30NC5

250

6.25-6.375%a

N/A

6.25%

$25

MS (phys) + 5

Lipper Report/Fund Flows

For the week ended February 3rd, Lipper U.S. Fund Flows reported an outflow of $1.451bn from corporate investment grade funds (2016 YTD net outflow of $4.947bn) and a net outflow of $40.897m from high yield funds (2016 YTD net outflow of $4.116bn).

Over the same period, Lipper reported an outflow of $405m from loan participation funds (2016 YTD net outflow of $2.894bn).

The top three most actively traded IG-rated issues were led by ABIBB 3.65% due 2/01/2026 that saw client flows account for 65% of the volume and with client buying 1.8-times selling.

ABIBB 4.90% due 2/01/2046 finished second with client and affiliate flows representing for 97% of the volume.

ABIBB 4.70% due 2/01/2036 placed third displaying 93% client flows.

New Issue Pipeline

Please note that for ratings I use the better two of Moody’s, S&P or Fitch.

Rentenbank (Aaa/AAA) announced it will issue a new 144a/REGS 5-year FRN due 2/19/2021 thru joint leads Bank of America/Merrill Lynch, Citigroup, Deutsche Bank and Toronto Dominion. The issue is guaranteed by the Federal Republic of Germany. The deal is expected to price sometime during tomorrow’s session with IOIs being taken with IPTs in the 3mL+35 “area.”

Mitsubishi UFJ Financial Group, Inc. (A1/A) mandated Morgan Stanley and MUFG to arrange investor calls in the U.S., Europe and Asia slated to begin on Monday, February 15th in preparation for a dollar-denominated Senior Unsecured Holdco Notes transaction. A global call will also take place on Friday, February 12th from 11am ET to noon. Joint active leads/books are MS and MUFG with J.P. Morgan serving in a passive role. MUFG filed to offer Fixed and FRN Senior Notes today, Wednesday, February 10th.

United Mexican States (A3/BBB+) on Monday, February 8th filed a $10b shelf registration covering debt securities and warrants.

On Thursday, February 4th, Electronic Arts, which S&P assigned a “BBB-“ rating to today, asked Bank of America/Merrill Lynch to coordinate investor calls beginning tomorrow, Friday, February 5th and continuing on Monday, February 8th from 10am to 5pm ET on both days.

Molson Coors Brewing Company (Baa2/BBB), expects to issue up to $6.8b in new debt to help fund its $12b acquisition of Miller beer brands from AB InBev an SEC filing shows. On Tuesday, January 26th , Molson Coors filed an S-3ASR automatic mixed shelf registration covering debt securities, Class “B” common stock, depositary shares, warrants and units to be used for general corporate purposes including debt refis, acquisitions, working capital, CAPEX and repurchases of redemptions. Molson Coors announced last year that will acquire SAB Miller’s interest in MillerCoors for $12b contingent upon AB Inbev’s purchase of SABMiller. The deal is expected to close some time during the second half of 2016.

Corporacion Andina de Fomento or “CAF” (Aa3/AA-), the Latin American Development Bank, mandated Bank of America/Merrill Lynch, Citigroup, Deutsche Bank and HSBC to arrange global investor calls scheduled that began today, Thursday, January 28th in preparation for a dollar-denominated global offering that could soon follow their conclusion.

Banque Ouest Africaine de Développement or “BOAD” (Baa1/BBB) mandated BNP Paribas, Deutsche Bank, J.P. Morgan and Standard Bank to arrange fixed income investor meetings scheduled that began on Monday, January 18th in preparation for a dollar-denominated benchmark 144A/REGS S/3( c )(7) Senior Unsecured transaction that could soon follow its conclusion. “BOAD” is the West African Development Bank.

The State of Israel (A1/A+) filed a 424B5 registration statement under which it may offer up to $7b of debt securities and subsequently asked Barclays, Citigroup and Goldman Sachs to arrange U.S. fixed income investor meetings that began on January 12th.

The Republic of Turkey (Baa3/BBB-) filed an S-B shelf registration covering over $4.9b of debt securities. Turkey has issued in January in 12 of the past 13 years.

CIBC Funding, L.P. guaranteed by CIBC and rated (Aa3/AA-) asked Citigroup, CIBC Capital Markets, BNP Paribas and Wells Fargo held fixed income investor calls that wrapped up on Monday, December 7th in preparation for a dollar-denominated 144a/RegS 3( c )(7) transaction that could soon follow.

Split-rated Yapi ve Kredi Bankasi A.S. (Baa3/BB+) mandated Bank of America/Merrill Lynch, Citigroup, Mistubishi UFJ Securities Inc. and Unicredit as joint leads and books to arrange investor meetings that began on Tuesday, December 1st in the U.S., Europe and Asia in conjunction with a 144A/RegS Basel III compliant Tier 2 dollar-denominated offering expected to price sometime in early 2016.

Romania (Baa3/BBB-) asked HSBC, RBI, SG and Unicredit to arrange credit update meetings with U.S. investors across four cities that concluded in New York on Thursday, December 10th.

Kia Motors Corporation (Baa1/A-) road showed with fixed income investors thru meetings arranged by Citigroup and J.P. Morgan that began on Monday, November 16th.

PT Pertamina (Persero) (Baa3/BB+/BBB-) mandated BNP Paribas, Deutsche Bank and J.P. Morgan to arrange fixed income investor meetings took place in on Monday, September 28th in London and that made subsequent stops in New York and Boston before concluding October 2nd in L.A.

M&A Pipeline – $657.785 Billion in Cumulative Enterprise Value!

Please note that for ratings I use the better two of Moody’s, S&P or Fitch.

Fortis Inc. (A-/S&P) announced on Tuesday, February 9th that it will acquire ITC Holdings for $11.3b in a cash and stock transaction. The terms stipulate that ITC shareholders will receive $22.57 in cash and .7520 Fortis shares per ITC share. Fortis will also assume approx. $4.4bn of consolidated ITC indebtedness. The cash portion of the deal will be financed through the issuance of about $2bn of Fortis debt and the sale of up to 19.9% of ITC to one or more infrastructure-focused minority investors. Fortis expects to maintain a solid IG credit rating.

On a consolidated basis, Southern Company (Baa1/A-) plans to raise $10.35b of debt in the capital markets this year, including the refinancing of nearly $2b of long-term debt maturities. This would account for more than 20% of an anticipated $47b of new corporate bond supply from U.S. investment grade electric utilities. Within that plan, the parent holding company would issue $8b to finance its acquisition of AGL Resources (BBB+/BBB+); this would be the largest single corporate bond issuance by a U.S. investment grade electric utility, surpassing the $6.7 billion issued by Pacific Gas & Electric in March 2004 as it prepared to complete its Chapter 11 restructuring. Southern Power (Baa1/BBB+) will be the next largest issuer, with $1,200 million budgeted for 2016, primarily to finance its growth plans.

Exelon Corp. (Baa2/BBB-) Debt financing plans for 2016 include $950 million at Commonwealth Edison (A2/A-) ($665 million maturing in 3Q16), $750 million at Baltimore Gas & Electric (A3/A-) ($300 million maturing on October 1) and $450 million at PECO Energy (Aa3/A-) ($300 million maturing on October 15). Exelon Corporation will either issue some debt to effectively replace the acquisition-related debt it redeemed in late 2015, or redeem its new 2025, 2035 and 2045 maturities, depending on whether or not it closes its $6.8b acquisition of Pepco Holdings (Baa3/BBB+). The only remaining required approval is that of the District of Columba Public Service Commission, which stated in its order of October 28, 2015 that it expected to issue its decision on or before March 4, 2016.

TE Connectivity (A-/A-) announced it will buy medical device maker Creganna Medical for $895mm in cash. The deal will be funded with available cash and debt.

Stryker Corp. (A3/A+) announced on Monday, February 1st, that it will acquire Sage Products, LLC in an all cash transaction totaling $2.775b that will be funded with cash and new debt.

Dominion Resources Inc. “D” (Baa2/BBB+) announced on Monday, February 1st, that it will acquire Questar Corporation “STR” (A-/S&P) for $4.4b in cash. “D” agreed to pay “STR” shareholders $25 per share and assume its debt. The deal will be funded with equity, convertibles and debt and is expected to close by the end of 2016. RBC and Mizuho are providing financing and acting as financial advisors to Dominion. The deal is subject to shareholder and regulatory approvals.

Abbott Labs (A2/A+) announced on Monday, February 1st, it will acquire Alere Inc. (Caa1/CCC+) for $5.8b in which “ABT” will pay $56 per share of ”ALR.” The deal will be financed with debt. ABT expects a strong IG rating despite the new debt. The deal is subject to “ALR” shareholder as well as regulatory approvals.

Newell Rubbermaid “NWL” (Baa3/BBB-/BBB+) and Jarden Corporation “JAH” announced on December 14th, 2015 that it entered in to an agreement to combine the two companies in a cash and stock transaction valued at $15.4b. The transaction will be funded with cash, equity, and debt issued to JAH shareholders. NWL entered into a commitment letter with Goldman Sachs to provide a $10.5bn bridge facility. In an S-4 filing NWL will refinance $4.5bn of outstanding Jarden debt and will assume $632 million of outstanding Jarden debt, with up to approximately $10.2bn of new debt expected to be incurred in the form of up to approximately $8.7bn of newly issued Newell Rubbermaid debt securities, a $1.5bn term loan facility and available balance sheet cash and the net cash proceeds from Newell’s sale of its Décor business. Goldman Sachs is acting as advisor to NWL. The deal is expected to close in Q2 2016 and is subject approvals.

Total Systems Services, Inc. “TSS” (Baa3/BBB-) entered into a definitive agreement with Vista Equity Partners to acquire TransFirst, a vista portfolio company, in an all-cash transaction valued at $2.35bn. In terms of financing TSS management noted that the deal will be funded with fully committed debt financing. On a pro forma basis at closing the combined entity will have approx. $3.8bn of debt and pro forma leverage of 3.9x. The transaction is expected to close sometime in Q2 2016 and is subject to regulatory approvals. Moody’s affirmed TSS’s Senior Unsecured “Baa3” rating and “stable” outlook.

Molson Coors (Baa2/BBB-) expects to issue up to $6.8b in new debt to help fund its $12b acquisition of Miller beer brands from AB InBev an SEC filing shows. The transaction will be financed thru cash, debt and new equity. The deal is expected to close some time during the second half of 2016.

Lockheed Martin (Baa1/BBB+) announced it will combine its information systems/global solutions entity with Leidos (Ba1/BBB-)in a deal valued at roughly $5b. Leidos will keep its existing $1.1b debt and expects to incur $2.5b of additional debt as part of the transaction. The deal is expected to close sometime in the second half of 2016.

Johnson Controls (Baa2/BBB+) announced it will acquire Tyco International (A3/A-) for $16.5b and with the merged entity operating in Ireland to save on taxes. Tyco secured a $4b bank facility to fund the cash consideration inferring additional long-term dated M&A ahead according to S&P. The deal is slated to close by the end of 2016. The new entity will be called Johnson Controls plc. Tyco has entered a commitment letter with Citigroup Global Markets to provide as much as a $4b term loan as well as a $4b 364-day year Senior Unsecured bridge loan facility.

This morning in Charlotte, shareholders of Piedmont Natural Gas (A2/A) voted to approve the Company’s acquisition by Duke Energy (A3/BBB+). 66.8% of voting shares supported the acquisition. In late October Duke Energy, (A3/BBB+) the nation’s largest utility announced that it will buy Piedmont Natural Gas (A2/A) for $4.9b in cash. Both companies are partners in the $5b Atlantic Coast Pipeline. The purchase, pending regulatory approval, will add one million new rate payers to Duke Energy’s customer base. The deal is expected to close toward the end of 2016.

ShirePLC announced this morning that it will acquire Baxalta Inc. (Baa2/BBB) for approximately $32.2 billion in cash and stock. Shire secured an $18b bank facility to finance the cash portion and will refinance it in debt. The deal creates the single largest maker of rare disease drugs in the world.

Dow Chemical and DuPont Co. (A3/A-) announced a merger of epic proportions worth $130b that brings together among the largest and most prestigious chemical and agricultural companies. The plan is to merge followed by a split into three businesses focused on agriculture, material sciences and a specialty brand focused on nutrition/electronics. The two companies are among the nation’s oldest with DuPont founded in 1802 and Dow in 1897.

Air Liquide SA (NR/A+) announced on November 17th that it will acquire AirgasInc. (Baa2/BBB) for $13.4b in which Airgas will be a wholly-owned subsidiary of its new parent. The transaction will be financed bridge loans that are expected to be refinanced through equity, Euro cash and euro as well as dollar-denominated debt issuance.

Avago Technologies (Ba2/BB+) is expected to buy Broadcom (A2/A-) for $37b. The transaction is scheduled to close by the end of Q1 2016. Avago will fund the $17b cash consideration with cash on hand and $9b in new, fully-committed debt financing from a consortium of banks.

Pfizer (A1/AA) and it’s Irish counterpart Allergan (Bbaa3/BBB-) announced on Monday, November 24th a $160 billion behemoth health care services merger making it the largest M&A deal ever. Pfizer’s U.S. headquarters looks to move across the pond to relocate to the emerald island (did someone say tax haven?) making it the world’s number one pharmaceutical company. Most of the M&A transaction will be in cash with a debt portion heard to be in a range of $6-12b. Post today’s close, ratings agencies have said the merger may involve a buyback of as much as $80-85b.

Michael Dell’s privately held Dell Inc., (Ba3/BB+), announced an up to $67b cash and stock deal to acquire EMC Corp. (A1/A).

BB&T (A2/A-) announced in August that it will acquire National Penn Bancshares for $1.8b in cash and stock ($550mm in cash and 31.6mm BB&T shares). The deal is expected to close mid-2016.

Black Hills Corp. (Baa1/BBB) announced in July an acquisition of SourceGas Holdings LLC (Baa2/BBB-) for $1.89b in a deal that will include approximately $500mm in new debt. Expected to close sometime in the first half of 2016.

UPS (Aa3/A+) announced it has entered into a definitive purchase agreement to acquire Coyote Logistics, a technology-driven, non-asset based truckload freight brokerage company for $1.8b from Warburg Pincus. The transaction will be financed with available cash resources and through existing and new debt arrangements and is expected to close within 30 days.

Israel’s Teva Pharmaceutical (A3/A-) announced plans in July to purchase Dublin-based Allergan’s Pharma (Baa3/BBB-) business for $40.5b. $33.75b in cash will be financed through a combination of new equity, debt and cash on hand. Teva entered into a $33.bridge facility commitment including $27b debt and $6.75b equity. Timing is expected sometime in Q1 2016.

Aetna Inc. (Baa1/A) announced in July that it will buy Humana Inc. (Baa3/BBB+) for about $37 billion in cash and stock making it the largest insurance M&A deal in history.

Anthem Inc. (Baa2/A) proposed to purchase Cigna Corp. (Baa1/A) for $54b or $188 per share furthering the consolidation in the healthcare sector. The deal is expected to close sometime during the second half of 2016. The merger would involve 53mm members and will include $22b in new debt and loans.

Amphenol Corporation (Baa1/BBB+) announced on June 29th that it made a binding offer to acquire 100% of FCI Asia Pte. Ltd. for $1.275b. Funding will be made thru cash and debt and is expected to close by the end of 2015.

New Issue Volume

Index

Open

Current

Change

IG25

119.554

121.563

2.009

HV25

371.845

368.815

<3.03>

VIX

26.54

26.29

<0.25>

S&P

1,852

1,851

<1>

DOW

16,014

15,914

<100>

USD

IG Corporates

USD

Total IG (+ SSA)

DAY:

$0.25 bn

DAY:

$0.25 bn

WTD:

$0.25 bn

WTD:

$0.45 bn

MTD:

$6.275 bn

MTD:

$14.359 bn

YTD:

$133.259 bn

YTD:

$184.483 bn

Economic Data Releases

TODAY’S ECONOMIC DATA

PERIOD

SURVEYED ESTIMATES

ACTUAL NUMBER

PRIOR NUMBER

PRIOR REVISED

MBA Mortgage Applications

Feb. 5

—-

9.3%

<2.6%>

—-

Monthly Budget Statement

January

$50.0b

$55.2b

<$17.5b>

—-

Rates Trading Lab

Tokyo Holiday Tonight: Cash Markets Will Not Open Until 2am. Andy will be on the desk from 1:30am(est).

It seems possible that market is setting itself for some sort of correction, but it also seems to be suffering from “seller’s exhaustion” as the path of least resistance, at least in the long end, is lower rates. As I said this afternoon, there are some very valid arguments for the rate complex to take a breather here, but I think it’s equally important to remember that auctions are liquidity events and in the current poor trading environment, liquidity is at a premium (no matter what the NY Fed theorizes). It’s hard to quantify, but it’s important to remember, that many buyers here are buying not because they want to, but because they have to. As for the curve, the flattening we have seen was not all that surprising given the term structure in place. Steepening trades make sense when you can collect enough carry to justify the forwards in a tightening environment. When the positive carry is not there, you really have to make a case for an easier Fed to justify a steeper curve so in that context, I think the move in the curve makes more sense.